In today’s briefing:
- BYD (1211 HK): Is Buffett Bailing?
- Reversion Trading on a Massive Price Diversion of LG Chem & LG Energy Solution
- Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- Fast Retailing (9983) | Time to Ditch the Shorts
- Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- SoCar IPO – Highly Competitive Market Coupled with Steep Valuations
- Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- TMT Pre-2Q Earnings: The TikTok Impact
BYD (1211 HK): Is Buffett Bailing?
- Just days after BYD (1211 HK) surpassed Tesla Motors (TSLA US) as the world’s largest electric vehicle producer by sales, is Warren Buffet cashing in his chips?
- 225mn shares of BYD – 7.73% of the H shares – moved into CCASS yesterday. These are Berkshire Hathaway’s shares.
- For a shareholder who has kept his holding in share certificates for 13 years, this development suggests the possibility of a partial or full exit.
Reversion Trading on a Massive Price Diversion of LG Chem & LG Energy Solution
- The price diversion between LG Chem and LG Energy has deepened considerably over the past two days. The sigma is currently -2.35. It is virtually the most extreme level year-to-date.
- LG Energy’s immediate-term overhang risk will likely offset the upcoming passive inflow event. In addition, the intensity of their price cointegration has not been weakened in recent months.
- Therefore, we should consider setting up reversion trading from this point on, aimed at the lockup release on July 27.
Topsports (6110 HK): Upsizing Undervalued Sporting Goods Play
- Topsports International (6110 HK) is trading cheap to peers Anta Sports Products (2020 HK) and Li Ning (2331 HK), and to partners Nike (NKE US) and Adidas AG (ADS GR).
- Like for so many companies in China, the combination of severe lockdown restrictions and global supply chain disruptions has impacted Topsports operations.
- Yet forward operational updates may surprise to the upside. Management appears confident of their “immersive shopping experience” strategy, and recently declared a special dividend for FY22 (Feb Y/E).
BYD’s Shares Tumble Awaiting Berkshire’s Next Move
- The increase of 225.2 million CCASS shares deposited with Citibank matches Berkshire Hathaway Inc Cl B (BRK/B US)’s stake. BYD (1211 HK) closed -12% down on speculation of a selldown.
- The H Share recently touched all-time highs and trades at a significant premium to historical multiples. BYD has a recent history of a selldown by a substantial shareholder (Himalaya Capital).
- Berkshire has made a 33x gain on its BYD investment, excluding dividends. Taking money off the table would align with Berkshire’s value investing mandate.
Topsports International Holdings – Is Cheap Enough to Counter Some of the Risks
- Topsports International Holdings (TIH) is now trading close to its all time lows, after the shares corrected by 50% over the past year.
- The company is one of the largest retailers for Nike (NKE US) and Adidas AG (ADS GR) in China.
- Given then on/off lockdowns the near term outlook isn’t great, but the stock appears cheap for those willing to take a longer view.
Fast Retailing (9983) | Time to Ditch the Shorts
- We turn bullish on Fast Retail as the current quarter marks the bottom for China sales
- The company continues to surprise in its mastery of gross margins and operating costs
- China is key, but the US is emerging as a new (and profitable) growth driver
Topsports International (6110.HK) – Has the Potential to Turn Things Around Despite the Headwinds
- Topsports suffered the first decline in performance since FY2018. Besides pandemic outbreaks and inventory shortage due to global supply chain disruption, over-reliance on Nike and Adidas is also the reason.
- This is the best opportunity to reduce the number of stores based on “Select+Optimize” strategy. With resumption of sports events and good prospects of China’s sports industry, Topsports could rebound.
- Topsports is undervalued compared with its peers, but we are now in a complicated macro environment. Share prices may not rise as expected, which should be aware of by investors.
SoCar IPO – Highly Competitive Market Coupled with Steep Valuations
- SOCAR (403550 KS) is looking to raise up to US$159m in its upcoming Korea IPO.
- SoCar is a Korean car sharing business which aims to become an all-in-one mobility solutions provider beyond car sharing, with approximately 80% domestic market share in the car sharing space.
- The firm remains loss-making with no signs of being profitable in the near/medium term. In this note, we will take a look at its valuations vs that of listed peers.
Topsports International: CCP’s ZERO COVID Policy Has a Bigger Whopper Impact than Cheap Valuations
- One of the key reasons why we are bearish on this stock (despite cheap valuations) is that the valuations may become even cheaper.
- The CCP remains intent on maintaining its ZERO COVID policy which means continued sporadic lockdowns and social distancing measures, which is negative for sports apparel products.
- All in all, we believe that a better time to get back into Topsports International is when the CCP becomes more vocal about finally relenting on its ZERO COVID policy.
TMT Pre-2Q Earnings: The TikTok Impact
- TikTok’s business model advantage: short form video creates greater signal for algorithmic addiction is forcing rivals to react (where possible).
- META is best positioned to copy TikTok, and is trading at a valuation approximating cable networks during cord cutting.
- Netflix is worst positioned… as YouTube, Instagram, and Snap incorporate TikTok’s short form video, more attention will be drawn away from the streaming services. Tough spot to be in.
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